Cleantech Investor

First published in Cleantech magazine Sept/Oct 2009. Copyright Cleantech Investor 2009

By John O'Brien, Australian Cleantech

Media coverage of the latest round of climate related legislation in Australia has been hysterical, to say the least. Emissions intensive industries will emigrate to carbon-friendly countries, coal-fired power stations have stopped long term maintenance, exports will be slashed, jobs lost and the country will generally go into a steep and unavoidable economic decline!

The voice of the cleantech industry, although not so loud, is not dissimilar – potential green jobs will be lost, the country will be left behind, etc., etc. I’m sure there is nothing unique about the Australian debate.

The legislation passed establishes a Renewable Energy Target (RET) of 20% of stationary power to be generated from renewable sources by 2020, increasing the annual generation from its current 9,500GWh to 45,000GWh. Enforcement is through energy retailers having to submit sufficient Renewable Energy Credits (RECs) relative to their total energy sold. As RECs can be banked in advance, it is believed most of the target will be met by onshore wind farms constructed over the next fi ve years or so. This could lead to over 10,000MW of installed wind capacity being constructed at a cost of more than A$20 billion. Forecast forward REC prices vary, but may end up at around A$40, with a REC being roughly equivalent to 1 tonne-CO₂e.

Another piece of legislation, defeated in the Upper House and to be re-introduced in November, is the Australian Emissions Trading Scheme, which the Government has called the Carbon Pollution Reduction Scheme (CPRS). This was voted down primarily by conservative politicians worried about impacts on both rural communities and emissions intensive industries, amid a resurgence of climate scepticism and a view that making any decisions pre-Copenhagen is pointless. The current scheme proposes a fixed carbon tax for its first year of operation, starting in July 2011, and a tradeable carbon commodity thereafter. The targets are modest; a 5% reduction on 2000 levels by 2020, with the carbon price not expected to exceed A$25/tonne-CO₂e during this time. With carve outs for petrol and most of the emissions intensive and export industries, the CPRS, even if passed, would seem unlikely to drive signifi cant behaviour change. The draft, which allows for unlimited import of credits from CDM projects, but no export of credits from Australian projects, has disappointed investors seeking to develop local projects and trade credits on other markets with tighter targets and the potential for higher carbon prices.

Signifi cant debate has occurred on the impacts of this legislation on the cleantech industry in general and which subsectors will be most affected. Over the longer term, the winners will be those technologies providing required solutions at the lowest costs. In the short term, however, there will be huge impacts on individuals, companies and investors.

A look at which of the subsectors of the Australian Cleantech Index have performed well recently demonstrates the correlation between policy and investment returns. The ACT Solar Index has risen by 119% since 31 January, driven entirely by increased demand for rooftop solar photovoltaic panels resulting from Government rebates for small scale PV installations, leading to large share price gains for companies like Quantum Energy.

Big solar also appears set to make signifi cant progress through a A$1.5 billion Government funding programme to be rolled out from 2010. Winners from this may include companies such as Wizard Power, Acquasol and Solar Systems.

Also since 31 January, the ACT Wind Index increased by 33.1%, roughly in line with the overall index. Investors were clearly not confi dent enough in the passage of the RET legislation to inflate the share prices of likely beneficiaries, and there is a strong expectation these enhanced returns will now materialise.

A valid question is whether the backing of wind will exhaust the investment appetite for cleantech, leaving nothing for other subsectors such as water, waste, vehicle technologies, energy efficiency and energy storage. Considering the fundamental drivers of cleantech, other subsectors may not accelerate as fast as wind in the short term and investment returns may not be as strong. However, demand for increased resource efficiency, reduced waste and improved environmental performance will ensure that technologies across the Australian cleantech spectrum will succeed even in the short term.

Current activity within the electric vehicle subsector in Australia includes the Better Place announcement of its first Australian project in the nation’s capital, Canberra, with financial support from Macquarie Bank. However, domestic development of EVs has made little progress, with emphasis on trials of imported vehicles from the likes of Mitsubishi and Renault. The announcement made in late 2008 by GM Holden (the local GM subsidiary) – that it would start to manufacture a four cylinder car within a few years as a significant energy efficiency on its standard six cylinder model! – illustrates the status of the Australian car industry.

Battery technologies are, however, forging ahead and some of these may find homes in EVs manufactured elsewhere. Technologies such as Cap-XX’s supercapacitors, Cougar Energy’s and V-Fuel’s vanadium-based batteries and ZBB’s and RedFlow Energy’s zinc-bromide batteries are all progressing well. There are also some exciting battery technologies coming out of research institutions such as the CSIRO, although many struggle to secure sufficient seed funding.

In summary, the Australian legislative agenda is progressing, although more slowly than many had hoped when the current centre-left Government was elected in late 2007. The major beneficiary from policy decisions to date has been household solar, with wind likely to be the big winner over the next few years. Australia is a long way behind on EV developments, although its battery technologies have significant potential, if they can attract sufficient early stage funding.

John O'Brien is Managing Director of Australian CleanTech, a research and broking firm that provides advice to cleantech companies and financial institutions. He recently edited the book, "Opportunities Beyond Carbon: Looking Forward to a Sustainable World".